Cryptocurrency – An ultimate guide to how it works
The evolving technology has brought many changes in our day to day lifestyle. From shopping any household item online to paying of your bills, each and everything can easily be carried out with the help of electronic medium. And added to these now, we have even got the electronic money.
Yes! The currency running around the electronic medium is fast chasing the race and no doubt a threat to the world of real currencies. Well, cryptocurrency is a word in every banker’s dictionary. To define it, cryptocurrency is a medium of exchange, created and stored electronically in the blockchain, using encryption techniques to control the creation of monetary blocks and to verify the transfer of funds.
Let us explore the realm of cryptocurrency world and find out the mechanism ruling the databases of cryptocurrencies. A cryptocurrency, for example Bitcoin consists of a network of peers. Every miner has a data of the complete history of all transactions and thus of the balance of every account.
A transaction of a cryptocurrency is a record which displays – “Jasmine gives X Bitcoin to Helen” and is signed by Bob’s private key. This is no complicated science but just a simple public key cryptography. After signed and authorized, a transaction is declared publically in the network, sent from one peer to every miner in the network. This is known as basic p2p technology.
How It works?
Let us go explore in detail on how cryptocurrency is created and how it works.
- Someone buys or requests a transaction.
- Once a request for currency transaction is created, the transaction is broadcast to P2P network consisting of computers, known as nodes.
- Then comes the process of validation. The network of nodes certifies the transaction and validates the user’s status utilizing known algorithms.
- This verified transaction consists of cryptocurrency, contracts, records or other information.
- Once verified, the transaction is added with other transactions to create a new block of data for the ledger.
- The new block created is then added to the existing blockchain, in such a way that it stays permanent and unalterable.
- Now, the transaction is fully complete.
Once a transaction is over, it is immediately declared in the whole network. However, the transaction is only confirmed after a specific amount of time. Confirmation is the most crucial part of cryptocurrencies. Hence, we can say that in cryptocurrency is all about confirmation.
The transaction can be forged as long as it is not pending and not confirmed. When the transaction is confirmed, it becomes a solid. It cannot be reversed and forged. It becomes a block, a part of an immutable of record of historical transactions and becomes a so-called blockchain.
Transactions are only confirmed by miners. They take transactions, stamp them as legit and spread them in the network. When a miner confirms a transaction, every node has to add it to its database. It has become part of the blockchain.
Thus, a transaction is carried out and it becomes complete. Cryptocurrency, unlike real world currency, has a bit complicated process and is only bought or sold through you secured online nodes.